HL Deb 11 July 2003 vol 651 cc579-82

11.22 a.m.

Lord Davies of Oldham rose to move, That the draft order laid before the House on 12th June be approved [23rd Report from the Joint Committee].

The noble Lord said: My Lords, I beg to move that the draft order laid before the House on 12th June be approved. It introduces changes to the corporate insolvency provisions of the Insolvency Act 1986 as inserted by the Enterprise Act 2002.

The corporate insolvency provisions of the Act are intended to facilitate the rescue of viable companies where practicable, or to achieve a better result for creditors as a whole than in an immediate winding-up. In order to achieve that objective, the Act streamlines the process of administration to make it fast, fair and focused on rescue and places a great, general prohibition on the appointment of an administrative receiver.

By generally prohibiting the appointment of an administrative receiver, the Government seek to shift the balance in favour of the new streamlined administration procedure, thereby ensuring that account is taken of the interests of all creditors—including small firms and other trade creditors whose claims are unsecured; whereas an administrative receiver has a duty principally to the holder of the charge appointing him.

However, the Government recognise that there are instances where the appointment of an administrative receiver is fundamental to the effective operation of a specific market or sector and not simply a device to facilitate the realisation of assets to satisfy the claim of a floating charge holder. Section 250 of the Act makes a number of exceptions to the prohibition of the right to appoint an administrative receiver to deal with such circumstances. The exceptions are in respect of capital markets, public private partnerships, utilities, project finance, financial markets and registered social landlords. The Act also provides for the insertion of additional exceptions through an order approved by resolution of each House of Parliament.

The draft order before us introduces two further exceptions to the prohibition; namely, an exception in respect of urban regeneration projects; and one in sectors where special administration regimes are in operation. I will deal with each new exception in turn.

On urban regeneration, government policy is to deliver an urban renaissance through a programme of change and development in towns and cities. That will be achieved only through engaging the private sector. In many locations, such as disadvantaged communities, the necessary development may be marginal or require public sector support. In those cases, funders place a high value on the right to step in to appoint administrative receivers in the event of failure. Without that right, the cost of finance is likely to rise, impacting on marginal projects and, therefore, undermining regeneration policy.

The Enterprise Act 2002 already includes exceptions from the prohibition on the appointment of an administrative receiver for very large projects where the expected level of debt is at least £50 million; and for private-public partnership projects involving step-in rights. However, the current exceptions do not cover smaller, purely private projects in disadvantaged areas, which the Government are keen to encourage. The draft order provides an exception for such projects, without which they are likely to be susceptible to increases in the cost of finance which, in turn, could undermine their viability.

For special administration regimes, the draft order introduces a further exception to the prohibition of the right to appoint an administrative receiver in respect of the water and transport sectors, where special administration regimes operate that draw on and amend the current administration provisions. Section 249 of the Enterprise Act saves the current administration provisions for such regimes and disapplies Section 248 of the Act, which inserts the new streamlined administration procedure contained in Schedule 16 into the Insolvency Act 1986.

Without creating that further exception. the holders of qualifying floating charges over companies for whom there are special administration regimes would no longer be able to enforce their security by appointing an administrative receiver. In addition, because of the disapplication of Section 248 to such schemes, they would be unable to take advantage of the new administration procedures. The exception will correct that lacuna and allow the holders of qualifying floating charges to continue to be able to enforce their security through the appointment of an administrative receiver, within the limitations set out in the special administration regimes for the sector concerned.

I commend the order to the House.

Moved, That the draft order laid before the House on 12th June be approved [23rd Report from the Joint Committee].—(Lord Davies of Oldham.)

11.28 a.m.

Baroness Miller of Hendon

My Lords, I shall be brief in supporting the confirmation of the order. I want to focus on its main objective, which is to prevent the holder of a floating charge from appointing an administrative receiver of a company. The fact is that the majority of such floating charges arc in favour of banks, and are often supplementary to a fixed charge over a specific property asset.

It is more difficult to enforce a mortgage than it is to appoint an administrative receiver, because such an appointment can be made at the stroke of a pen. Once appointed, an administrative receiver answers to those who appointed him and his primary duty is to realise assets to clear the debt secured by the floating charge, irrespective of any adverse—possibly fata—effects on the company. Perhaps the greatest number of complaints made to the Department of Trade and Industry relate to the activities of administrative receivers. Despite recent legislation, we still lack the full-blooded protective regime that exists under the United States' Chapter 11, but we are certainly getting closer, and this order amending the 1986 Act is a welcome step closer.

I do not often find myself quoting the Secretary of State for Trade and Industry with unqualified approval, but on the day that the Enterprise Bill was published, she wrote: The corporate insolvency law reform will restrict the use of Administrative Receivership, which tends to serve one creditor above all others. And fit the balance in favour of administration. This takes into account the interests of all creditors—secured and unsecured". The regulatory impact assessment said that the new legislation will help, to rescue viable companies and if this is not possible, to produce a better return to creditors". That means all creditors, not just the debenture holders. We applaud those objectives.

Before I sit down, perhaps I may take the opportunity, while I have the Minister's attention, to ask him if there is any hope in the not-too-distant future of there being a consolidating Act to bring the Insolvency Act into tidier form. At the moment, with all the amendments that have been made to it in the almost 20 years since it was first passed, it is difficult to check what the law is without access to a specialised law library, because the Act itself now resembles a patchwork quilt.

Lord Addington

My Lords, I, too, hope to be very quick—I shall try to avoid using the word "brief" and the many pitfalls that accompany it. Everyone seems to be in agreement on the issue. My noble friend Lord Sharman said that the administration is to proceed with speed, which is what we sought to do in the Bill when it was first brought before us. I think, therefore, that we can say that we are in favour of the order. The two exemptions, and the idea of protecting brownfield site development and public utilities, seem sensible.

I am afraid that there is not much detail on the second exemption. I would appreciate it if the noble Lord could tell us when we will get more technical information.

Lord Davies of Oldham

My Lords, I am grateful for the generally favourable reception of the order. I am somewhat overwhelmed by the fulsome commendation of the noble Baroness, Lady Miller. I am sure that the wires will be humming to the DTI on that commendation; if not, I shall make them hum. I would have hoped that the quote could have been in a wider context across the swathe of government policy for which the Secretary of State is responsible, but that is probably asking a bit much.

The noble Baroness asked whether company rescue would effectively be achieved. In the areas covered by the exceptions, the purpose of appointing an administrative receiver is to ensure that the company will continue to trade so that the provision of the public service is not interrupted and, in other cases, that the income stream from the company is maintained. That outcome is entirely in line with the aims of the Enterprise Act, which seeks to ensure that viable companies that face financial difficulty can be rescued and do not go to the wall. We are at one on the broad objectives. I recognise the noble Baroness's reservation on that point.

I also recognise the noble Baroness's rather fetching analogy of a patchwork quilt of legislation. Some of us regard such legislation as impenetrable thickets rather than patchwork quilts. However, we will do our best to try to make the picture more attractive and more meaningful, if only for the sake of Ministers defending orders at the Dispatch Box.

On Question, Motion agreed to.